3G iPhone & The Smartphone Wars

Like a good game of chess the players in the smartphone market are always coming up with new moves to gain a competitive advantage. The latest move came a couple of days ago as Apple unveiled its new 3G iPhone and I have to admit that it’s taken me a while to digest all the information.

For starters, I was surprised to see how many iPhoniacs were disappointed by the lack of really “new” new hardware features and functionalities. Basically Apple has only added 3G and GPS and not upgraded the 2 megapixel camera, not introduced a 32GB version, not added either video, MMS, synching of Notes, A2DP Stereo Bluetooth nor rather importantly the sorely missed “Cut & Paste” functionality.

Having said this, in much the same way that Palm leveraged its existing technology to reduce the price of its Centro to $99 – selling close to 2 million smartphones in the process – so now Apple is also playing a more aggressive pricing game with the announcement that the 8GB and 16GB 3G iPhone will sell for $199 and $299 respectively with a 2 year contract – half the price of previous models.

Additionally, on the software front, Apple announced that the iPhone 2.0 software update (standard on the 3G iPhone) will among others incorporate support for Microsoft Exchange Server as well as Cisco IPSec VPN and more email attachment support. There is also an App Store to download software wirelessly and a new MobileMe subscription service ($99 per year) for those people looking for wireless sync and push email, calendar and contacts online, at their PC and smartphone without the need for MS Exchange.

The net result of this pricing change combined with the new software features means that Apple is likely to garner an increasing share of the price-sensitive “Consumer” segment while at the same time consolidating its strong position in the “Prosumer” segment – where it will compete against new entries such as the BlackBerry Bold and touchscreen-only BlackBerry Thunder as well as (to a lesser extent) the forthcoming Windows Mobile Treo 800w and Treo 850.

Palm for its part will unfortunately not have a smartphone (running its new NOVA OS) to aggressively compete in the Prosumer segment until at least the end of March 2009 – a full 9 months away. Altogether Palm will not have released a new high-end Prosumer smartphone in 24 months (since the Treo 680) during which time the company effectively completely relinquished the market that it created to Apple and RIM. Basically, Palm screwed up royally on this front in the last couple of years.

The saving grace in 2008 is that the growing share of Windows Mobile in the Enterprise market should considerably help Palm when it releases both its high-end WiFi and GPS enabled CDMA Treo 800w on Sprint and Verizon (in July and September respectively) as well as the GSM Treo 850 on AT&T (around September).

The other reason to remain less than harsh on Palm for now is that 1) the company appears to be increasingly moving in the right direction and 2) these are still very early days in the “Smartphone Wars” and the market remains filled with opportunities. The fact is that most people fully expect Palm to make a strong comeback in 2009 and the company is gaining increasing support partly for its continued resilience as well as the caliber of its new executive team building Palm 2.0.

This growing team of industry pioneers now working at Palm includes iPod creator Jon Rubinstein, former Apple CFO Fred Anderson and former Apple product developer Mike Bell as well as Michael Abbott who ran .NET services at Microsoft (likely working on a new Sync and Wireless Sync technology as well as other Web Services) and Way Ting who founded software firms Voxa and Pictra (pointing to strong Web 2.0 components in NOVA).

Analysts now believe that even with modest success of its new Windows Mobile Treo line combined with the next-generation NOVA OS smartphone next year might help Palm’s stock more than triple over the next 12 months. With this in mind, T. Rowe Price Associates recently gobbled up 10 percent of the company (forking out a cool $140 million in the process) with a view to such huge returns in 2009.

In the meantime, people outside the enterprise looking to purchase a new smartphone within the next couple of months will be wondering which way to go. I believe that those with the most value-conscious minds will continue to find that the Palm Centro delivers an outstanding experience and excellent value for money while those with more cash to spend will undoubtedly choose either the 3G iPhone, BlackBerry Bold or new Windows Mobile Treo smartphones.

It’s evidently more than a little disappointing and frustrating for me and millions of other devoted Palm fans that the company does not have a strong Prosumer smartphone lineup _right now_ but my bet is that at least next year we’ll all be able to claim our top place in the smartphone game again. In the meantime I guess that I’ll continue to happily use my Centro…

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Comments

1

by Arthur Greenwald | Jun 11, 2008 5:01:47 PM

I really admire your gallant and loyal defense of Palm and the Treo, but I've been waiting a year, eagerly anticipating the 3G iPhone. I can't think of a single reason to give Palm any more time. The web browser and screen size alone of the iPhone make it more useful to me than my aging Treo 800P. The fact that they're about to release an almost limitless amount of 3rd party software (at bargain prices) -- coupled with consumer-friendly Enterprise software--- seal the deal.

Finally, as Mac and Verizon user, synching my data has been quite a nuisance.

I'm glad you have an iPhone accessory store because I continue to appreciate your good customer service.

2

by Aaron | Jun 11, 2008 6:31:21 PM

Alas, the only reason I'm not buying an iPhone 3G next month is because I'm still locked in to a Sprint contract. (The upside: because I'm a loyal Sprint customer, my 3G data is free.)

It's baffling to me that Palm, Microsoft, Nokia, Samsung, LG, and all of the carriers have allowed Apple and AT&T to simply dominate the mobile web browsing market for an entire year now.

Is it really that much of a development challenge to build a decent mobile browser? Opera Mini is a decent start, but it's platform-agnostic and poorly integrated on my Centro... not to mention slow as molasses.

My big hope this year is that the GooglePhones will be decent enough in their first incarnation to be worth buying. My Centro is small but increasingly useless. Palm has had years of chances and passed them all up. I'm gone once the gPhone arrives.

3

by ENE | Jun 11, 2008 9:07:14 PM

Is there ever be the day that the Palm data (calendar, contacts, etc) will be compatible or transferable to iPhone or the Windows Mobile plataform?

4

by Alex e. | Jun 11, 2008 10:15:36 PM

The day has come. Palm Inc worst fears came true. The Iphone 3G. I was surprise with the atractive price. Palm can not compete. When the Iphone 3g come out July 11, I am buying 3 for my whole family. So I got for sale three Treos. There was a day when Palm Inc was a Pioner, those days are over. I am sad . . . Palm Inc. executives has being too slow to progress. Watch the sales going down. Even people with Palm Centro's who discover the joy of having a smart phone will quickly move away from an outdated plataform into a more progresive system. BYe Palm, it was good as long it lasted.

5

by John Cleary | Jun 11, 2008 10:27:24 PM

My biggest comment here is to your image. It's just plain wrong.

The iPhone now covers both 'prosumer' and also 'enterprise' completely.

You can say that you think the Treo is better in certain areas, but don't fool yourself that the iPhone 3G isn't enterprise friendly. Give it 6 months, they will be EVERYWHERE.

John

P.S. All the enterprises i've dealt with are currently using Exchange Push + Nokia E Series. Now, they will all jump ship to the iPhone I'm guessing. Treo? That's been dead to enterprise for ages. Just like HTC/WinMo devices aren't popular.

6

by tommy | Jun 11, 2008 11:22:25 PM

Two years ago, I would never believe that I would ever consider buying an Apple phone! But, since I last purchased my Treo 680, nothing really new has come out. The entire time Palm has been "farting" around with a new O/S. I can't believe that they are not working 24/7 to get it out and instead watching Apple seize the market.

Now it has come time to renew my phone contract. Before Monday, I would never pay $400 for a phone, but at $199, I'm leaning towards an iphone. The only thing that I don't want to give up is my large library of palm software and my keyboard.

How about at least a teaser from Palm of the new O/S or something to give me a reason to wait?

7

by gary | Jun 12, 2008 1:04:25 AM

Palm has manage to effectively abandon the smartphone market, having not produced an OS or any innovation in their hardware for almost 2 years. Oh wait they did manage to remove the antenna from their phones. Big whoop! Substituting WM5x doesn't count either, whata joke.

And these "former" industry pioneers haven't formed anything but maybe their office spaces and fiefdoms in their corporate hierarchy.

Bottomline, with the 3G iPhone release in July, Palm has maybe 'til Sept.08 to release something marginally competitive. Otherwise, some entity will buy the remaining assets for "parts" and those former innovators can look for work elsewhere.

8

by Blake Washington | Jun 12, 2008 2:18:22 AM

AGAIN with the $99 for Centro. PLEEEEEASE put an asterisk as this price is only for NEW subscribers. The Centro costs $349.

9

by Andrew | Jun 12, 2008 10:12:27 AM

Blake - since we're on that subject it may be worthwhile pointing out that the 3G iPhone at $199 and $299 is also ONLY for new subscribers...

Without a contract the 3G iPhone costs some $449 and $549...

Cheers, A.

10

by Blake Washington | Jun 12, 2008 12:25:24 PM

Where in the world did you get that info? $449 and $549?

11

by Blake | Jun 12, 2008 12:36:51 PM

Sorry Andrew, you're wrong. I just called Apple and confirmed the phone is $199/$299, not $449 and $549. Call for yourself if you don't believe me. 1-800-MY-APPLE By buying the iPhone, it does not reset your contract you're currently in with AT&T either, something that Sprint has failed to do with their customers. That's one of the main reasons I left them because every time I needed to change my plan, it would reset my two-year contract with them. $199 for 8gb, and $299 for the 16gb.

12

by plmn | Jun 12, 2008 1:44:37 PM

I thought in the US the iPhone 3G was only available with a new two-year contract regardless of if you are or are not an existing customer. That's what every news outlet I have read has stated. This means after the contract is up the 3G iPhone will have cost you more than the existing iPhone, which is already a pretty expensive package deal.

My Centro was $99. I was an existing customer. No cost increases from my previous non-smartphone contract. For the record, mine is a business account.

There are asterisks in pretty much all mobile phone advertised prices. The overall cost of ownership for a two-year contract with an AT&T iPhone was and still will be much more expensive than that for a Sprint Centro. That's the bottom line.

You can argue you get what you pay for or that the iPhone is worth it, but insisting it's a great deal is ridiculous.

13

by Andrew | Jun 12, 2008 2:06:05 PM

Blake - for clarification I need to point out that unlike the current iPhone the new 3G iPhone will be fully subsidized by AT&T and this is why Apple is able to claim a price of $199/$299 much like Palm is able to claim a price of $99 for the Centro.

However, this prices is only available (for both Centro and 3G iPhone) _after_ rebates AND a 2 year contract...

AT&T will not make its full pricing official until about one week before the July release but you can be certain that there will be different prices for existing customers and new customers.

Cheers, A.

14

by Nigel | Jun 12, 2008 2:09:41 PM

iPhone: still no cut and paste. Still no to-do list integrated with calendar and address book. Still a multimedia toy that doesn't meet my business needs. Still overpriced monthly plans.

Maybe third party software will eventually take care of the glaring defects, maybe not, but they won't address the price issue.

15

by Blake | Jun 12, 2008 2:10:28 PM

I just called AT&T today and they said $199/$299 for existing customers and no new contract will be required for that price if you're an existing customer.

16

by Blake | Jun 12, 2008 2:12:55 PM

For the record, Andrew, you brought up the iPhone. My simple statement was that the $99 price tag for the Centro that you love throwing out there is only for new subscribers. $349 is the price for a Centro.

17

by femaad | Jun 13, 2008 5:20:41 AM

hi! i have been a palm user since 1998. truth is, i'd go for palm OS anyday. i just honestly wish palm would improve its look and other features. the iPhone is so pretty! the LG prada phone is pretty, too. can't palm make a phone as pretty as these, yet operate on palm OS? other phones already have GPS, wi-fi, better resolutions on their cameras...can't palm do the same thing too?

i've been checking diff. sites if the palm apps i have bought are compatible w/ iPhone...i'm starting to feel like i'm so unfaithful...

18

by Steven | Jun 14, 2008 9:30:38 AM

As was only mentioned once here with any clarity. The 3G iPhone is not any cheaper than the original one! When you factor in that ATT has raised the data plan costs. I can't remember the link, but over the life of the 2 year contract you end up paying $40 more for your iPhone and then you still have the higher data plan rate after that. I was all excited at first about the new pricing for the iPhone, but even in the early announcements there was at least a mention that ATT was raising the monthly rates. Most people who are getting excited about $199 for an iPhone are ignoring the total (and then sustained) cost of ownership.

I could be happy with a Palm Treo 680 or even a Centro, except that either T-Mobile has no interest in Palm any more, or Palm has no interest in expanding their market. Just looking at the cost of improving on my old Treo 600, I either have to buy an unlocked 680 or centro and hope it works with T-Mobile or I switch carriers to ATT. And I've read about a lot of problems with 680s freezing up, so I'm not sure if I want to take the risk of an unsupported phone with my carrier.

If I'm going to switch from T-Mobile, I might as well switch from Palm also. What I'm not clear on yet is if ATTs data plan rate increase only applies to the iPhone, or if all smart phones will be paying more.

It's been 6 months since the rumors of a T-Mobile Centro, and not a peep since that January speculation. I can't wait until 2009, I'm even considering a BlackBerry. In the end that will be a loss to either T-Mobile or Palm, or both.

19

by Todd | Jun 14, 2008 9:25:02 PM

I wish my company was on Exchange, but they're not. Until I can sync an iPhone to Lotus Notes, it's less useful for me.

Also, you now have to pay extra for SMS and the data plan cost has increased on the iPhone as well.

However, the real reason that I won't get an iPhone (at least for now) is coverage. AT&T's 3G coverage is severely limited. I've had no problems with broadband on Verizon and I am not always in major metropolitan areas. Cool PDA phones are great, but not if the coverage is just so-so.

20

by David | Jun 18, 2008 11:42:00 PM

Yeah, its too bad. I was a very loyal Palm user. My Palm 650 (with many accessories) is three years old! Since it was 1 year old I have had my eye on a replacement that would be worth it, but the follow-on products(700, 750 etc) were minor updates in my opinion and the upgrade cost was not worth it. Now I am headed to the iPhone. Built in GPS will replace the Tom Tom GPS accessory I have for my 650, eWallet is coming out with an iPhone version, the only thing that is missing now (which should be solved soon) is the ability to sync with my Lotus Notes mail, calendar and most importantly - contacts from the company I work for.

I do hope Palm turns around their products soon and i may come back one day, but until then, I am away for the 2 year romance with the iPhone....

21

by Thomas Howard | Jun 25, 2008 9:27:07 PM

I loved my Treo 650 in spite of its problems. The Treo 680 has been wonderful. But I switched from a PC with Outlook to a Mac with Entourage and the horrendous syncing is a showstopper. Palm has shown zero innovation in the last year or more. I keep watching this blog's RSS feed waiting for something compelling. PocketPC? 3G? Centro? Is that all? Have you seen a Blackberry lately? Or an HTC? Palm is almost irrelevant.

22

by steve | Jul 26, 2008 12:32:42 AM

for several reasons, principally Palm's lack of a decent model to compete, I am looking at the iPhone. However, I'm with Verizon (for its good U.S. coverage and use in the DC metro underground), and they tell me I can't use the iPhone with their service.

is this accurate? i.e., is iPhone incompatible with Verizon?

23

by dehan | Aug 10, 2008 1:33:06 AM

I'm confused over the hype of 3G. Isn't it in limited markets? Looking at coverage maps from providers I have a LOT more high speed data on Sprint than anyone on ATT's 3G network. So is it that much better for the times you are in a covered metro region?

When I was in the Verizon store with a friend and they were bragging about their new high speed data being in 50 cities it was all I could do not to laugh. That is one city per state, but realistically it means a lot of states have zero coverage. Who cares how cool a phone is if the network is the weak link? Which seems to be the case. Sprint has the best high speed coverage and by far the best pricing for data plans so that means no iPhone for me.

To be clear, I am a Mac fanatic and would love to be able to justify an iPhone. It is cool-eye candy for sure. But I just signed a new Sprint/Centro contract because the iPhone and it's network just aren't there yet. And I would sure love the friendly syncing instead of using Missing Sync (paying extra).

Doesn't the iPhone lack the ability to send photos taken with the built in camera? or can it do it in emails but not texts?

I agree that my Centro is no step forward from my 700p and for that I resent Palm. I sure would like wi-fi, stereo bluetooth, Pandora, GPS, better call quality, etc. but it isn't a reason for me to defect yet because no one else has a more complete package either.

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